Sunday, September 27, 2009

Sector Update for September 27th

Last week's sector update noted that all the sectors were trading in uptrends, with particular strength among sectors representing risk appetite among investors. With the pullback of the past week, we're now seeing a much more mixed picture of Technical Strength among the sectors, with most of them in a short-term non-trending mode. (Note: Technical Strength is a proprietary measure of short-term trend behavior that varies across the sectors from +500--strong uptrend--to -500, strong downtrend. Scores between -100 and +100 suggest no significant directional tendency).

Pullbacks in strength were particularly evident among raw materials (XLB) and energy (XLE) shares, reflecting commodity weakness and U.S. dollar strength. The week's weakness affected all sectors, however, as the chart above indicates: all show lower Strength scores than the week previous.

Here's how the sectors sorted out as of Friday's close:

ENERGY: -140

We can see that only the Industrial group qualifies as being in an uptrend and that just barely. The picture is consistent with what I mentioned in last week's indicator review: we have made a momentum high in the market and now find ourselves consolidating those gains. If this is the case, the current pullback should not be the start of a bear swing, but should be sufficient to inflict technical damage on what has been a very strong market since July. It is after that pullback that we should see tests of the bull highs.

I will be tracking the trend status of the sectors and reporting each morning before the market open via Twitter. The early morning tweets also summarize measures of market strength (new highs/lows) and momentum (Demand/Supply). You can follow the most recent Twitter postings on the blog page under Twitter Trader or you can follow the entire stream of tweets by going to my Twitter page.